Category Archives: Money

A reader asked recently, “What is national debt? It seems both complex and simple. How will it affect the future?”

Indeed, the US national debt is a complicated issue and this is evident in how the nations top economists continue to debate the significance of our debt and its impact on the nation. As the US national debt continues to swell, many people are seeking to understand the issue better. Here are some basic principles and strategies that should set your foundation for understanding the subject.

Types of US Debt

Public debt can be viewed as the actual amount of money the US owes through loans to individuals, groups, and governments.

This is what the government pays interest on right now.

The second type is “gross debt.”

Gross debt includes future obligations like Social Security.

Although future obligations may be covered by future taxes, current tax rates will not bring in enough revenue to cover them.

Today’s public and gross debt levels relative to the size of the US economy (GDP) are higher than they have been since WWII. This has happened since the Iraq invasion around 2003 and can be largely attributed to the post 9/11 economy and recent “Great Recession.” Entitlement spending (Social Security, Welfare, Medicare) has also had a significant impact on the rising gross debt as population growth has slowed and the ratio of people on entitlement programs to those paying for it has increased.

How the US Debt Will Impact Us

As obligations increase, the US government must continue to raise interest rates so that investors are willing to loan the US money. Alternatively, taxes must increase across the board. Either scenario can be harmful to the economy and thus limiting job opportunities and people’s ability to spend effectively. This creates a few potential problems.

As the US government increases interest rates to raise more money, investors may move money out of corporations leading to more government power and inflation.

As interest obligations to debt holders increase, taxes are no longer used to improve the country but instead go to other nations.

If a decrease in infrastructure programs happens before a decrease in entitlement spending then taxes become less and less an investment in economic growth and more of a temporary solution to support those in need.

American companies are considered more risky as the US debt increases causing prices to rise which creates inflation.

What You Can Do

As time passes, the US will either have to cut programs or increase taxes to pay for the problems. Simply increasing debt is not exclusive of these options since it will increase interest payments which decreases the amount of money going to programs. Even if the government never goes bankrupt, its power on the international scale will diminish slowly over time making living in the US less of an advantage. Here are some strategies you can consider to be prepared.

Be thankful that you live in a great economy that provides you with many more advantages than other places. How many people honestly are completely independent from everything else? Even if our country one day fails us, we’ve been very blessed until now. You have to appreciate the benefits along with the losses.

It’s always funny to watch people get jumpy over a fifty-cent coupon on their next pizza purchase and then not worry about the fact that their largest expenses (taxes and healthcare) may change by thousands of dollars one year to the next.

People definitely delight in the occasional saving. It’s a personal “win” and makes you feel like you beat the system. However, if your goal is to use your money a little more effectively, it’s worth knowing the impact of political changes so that you can react (and vote) accordingly.

What Are the Bush Tax Cuts

For starters, the tax cuts passed in the early 2000s had a few significant impacts. Based on 2010 brackets here are the noteworthy numbers versus pre-Bush tax levels.

You will save 5% on the first $8375 you make (~$419)

Plus 3% on income over $34,000 (another $480 for someone making $50K)

Plus $500 per kid (raised child credit from $500 to $1000)

Plus 5% on stock gains and 25% on dividends

Remember that your taxable income is far less than your salary. Just for breathing, the government exempts $3,650 (personal exemption), and because the government knows your a generous giver they assume you have at least $5,700 in deductions (granted if you have more you can deduct that too). So to be taxed as a $50K earner you would really need to make at least $59,350.

What You Can Do

Nothing. It’s politics. Or stop having kids just to get the child credit (I’ve heard they cost more than $1,000 per year to raise anyway).

No, actually there are some worthwhile moves. First and foremost, be knowledgeable. If the tax cuts don’t get extended, you (the average American) will likely bring home $400-800 less in income next year. For those of you who simply spend the amount of money in your bank account each month, you will be fine but you will end up buying less and continuing your saving achievements of zero. If you have a budget on the other hand, you may need to make some minor tweaks, but you should be ok.

Second, read the news. The Democrats basically control the situation right now in D.C. They want to raise taxes but don’t want to mess with people making under $200K. If that’s you, then you’ll likely see no changes in taxes (healthcare is another issue). If you make more than $200K then be afraid, kinda afraid. Your taxes will likely increase by a few thousand dollars and your inability to lavishly spend, donate, or save like you used to may hurt the economy, but that’s up for debate.

Sigh of Relief

So it looks like the pending doom of slightly higher taxes won’t hit/hurt most of us, yet. Larger concerns for your immediate finances are healthcare changes, but I’ll save that discussion for next week. Do be aware that the national debt is swelling quickly and the long term impact is unknown. Even if taxes don’t go up this year, they will go up eventually.

Generous Information Sources

The Free Money Finance blog recently posted a user’s question on financial Advice for a College Freshman? While there may be endless tips on the subject, here are four key areas I recommend focusing on. I know a lot of my readers are out of college, so feel free to add to it in the comments below and I’ll pass them on.

Find a Co-op Job or Internship

Check with your school’s career development or career services office and see what type of help they provide for obtaining a internship or co-op job. These types of jobs provide two great things. First, they will provide money towards your college living expenses and savings. Second, and more importantly, jobs provide work experience that will teach you valuable professional skills and set you apart as a job candidate when you graduate. Even if the job adds a semester or two to your college life, you are simply extending a great time to develop friends and future connections and better preparing yourself for the future.

Build a Fund to Pay Off the Loan

Assuming you are able to get some type of job, start working on a savings account to pay off that loan. I recommend an online bank like ING Direct or Ally that offers a decent interest rate and easy access to your account. Set monthly goals based on your income and save before you spend. Most college loans start charging interest after you graduate so no need to make payments until then, but if you have built up a savings account during college you will have some momentum into paying that loan off afterwards. Remember, loans are a constant distraction to developing one’s positive financial future and paying off the loan as soon as possible will help you focus on more important financial questions later in life.

Get Involved

Outside of just accumulating cash to be well prepared for the future, you should invest in yourself and skills as well. Your ability to succeed often corresponds to the amount of experience you have and the connections you have. The best way to gain experience working as a team and driving initiatives is by getting involved in clubs in college. Most colleges have a great variety of clubs to participate in so look for something you enjoy and practice being a leader and making things happen.

Work Hard

Every thing you want to accomplish in life will require some bit of effort. A great work ethic is what drives you through those hard times when you start to forget why you are doing something. College offers a great time to develop that work ethic whether it’s in class, in a club, or on the job. Don’t be afraid to fail and practice developing the endurance that will pay off later in life.

Lots of Last Minute Deals on Bing

The cashback program typically offers 2-25% cash back on purchases, and some retailers are ramping up the offers to entice last minute Bing cashback shoppers. To try it out, just search for the next purchase you’re planning to make on Bing. Also, don’t worry how small or large your cashback amount is as Microsoft has said it will remove its current constraint of at least $5 in savings before sending you the money. Here are a few great deals this week.

Where To Go Now For Good Deals

Once Bing cashback is gone the big question is where to go instead for savings. Thankfully there are a number of similar sites out there that are similar. Although, an actual cashback rewards style program will be hard to find, the deal sites below offer great discussions of the latest deals retailers are offering. To test a site out just click a link below and search for the product you want to buy. I tried searching for Macbook Pros on Slickdeals.net and was able to find a local retailer offering $200 off the going price everywhere else.

ING Direct is my favorite online bank. They offer decent rates with excellent services. They have been lagging, though, in the mobile banking market until recently when they unveiled a great new iPhone app. The app provides core services like checking your balance and transferring money, and it only lacks a few small options that would make it nearly perfect.

Getting Started with ING Mobile

The ING iPhone app is a significant improvement over their previous app offering which simply forwarded the user to their online website. Now ING customers will find a familiar loginscreen that requires a username, picture verification, a few questions, and a PIN. Similar to the online website, you can allow the app to save your username and skip to the PIN when you open the app on your iPhone. This allows for a quick sign on, but may be a security concern on the mobile platform.

ING Direct iPhone App Features

After logging into the app, you’ll be happy to find a simple and clean interface. Just swipe right or left at the menu on the top to access accounts balances, bill pay options, customer support, and a “Refer a Friend” link. The bill pay option allows you to send checks to friends when you owe them money making it easy to pay back friends on the spot (similar to Venmo). One feature I found lacking was the inability to add a friend to your bill pay list via the mobile app. Only those people who you have added to your online address book are available which is a significant setback to making this iPhone app very useful. Additionally, the app doesn’t integrate an ATM finder which exists as a standalone app.

Best Features

Account balances

Bill pay and friend pay

Refer a friend for a commission

Enjoyable Experience

All together this app is a great start for ING Direct as they enter the mobile market, and it is helpful to those concerned about their current balance while considering their next big impulse purchase. Loyal users will enjoy the friendly comments like “Hang On” and “Sorry, we thought you left & signed ya out” that have made the web version an enjoyable experience. Since ING users tend to like banking online this is a necessary step to maintaining their online reputation, but until options like adding friends to the bill pay address book are available via the phone this app is incomplete.

Are you an ING customer? Have you tried the iPhone app from ING or other banks and what do you think/expect from mobile banking? Let me know your thoughts below.

Saving money helps us make the most of the money we have no matter if it’s a lot or a little. Sometimes saving money may not be worth it if it takes hours to save a few bucks, but generally we all benefit from easy ways to save money and this can be done everyday. Continue reading Deal Sites That Help You Save Money Every Day→

Most of us have a bunch of old electronics lying around. If they still work you may be able to recoup some value from them by selling them online, and if they don’t work you can recycle them for free. There are a score of websites out there that you can use to sell or recycle your old electronics which is great both for you and the environment.

When I bought an iPhone, one of the selling points was that it replaced my regular cell phone and iPod. These still worked well and I didn’t want them to just go to waste. I knew they had some value but wasn’t sure how to get it from them. Here are some tips I found when researching ways to extract value from old electronics.

What You Can Sell or Recycle Online

Almost any electronic you have can be sold online. The better the condition the more money, but even if it is broken you will probably enjoy clearing out space in your office or closets by getting rid of old electronics. Here are some of the most common items you can sell online.

Cell phones

iPods

Digital cameras

PDAs

Gaming devices

DVDs

Computers

Where to Sell Them

Online recycling sites ask questions regarding the condition of your device to determine value and will pay for your shipping costs. They do almost all the work for you making the process of cleaning out your old electronics extremely easy. I tested the interfaces and value calculators with an old iPod mini that I am planning to sell or recycle.

BuyMyTronics.com – offers great value, erases all data, and is environmentally friendly

For a little more work and potentially more value, check out the online auction site eBay. On eBay you will have to go through the process of setting up an auction, receiving money, and shipping the item, but it may be worth it. Research recent auctions to determine the going price and decide if it’s worth your time.

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Related Articles

Cash is a great system that helps many people control their spending, but for those who have taken hold of their budget there is a great benefit of cashless systems like online banking. The newest method of exchanging money that may lead the way in the next decade is paying over your mobile phone via text message. One of the best young companies to offer the service is Venmo.

How Do I Pay With Text

Paying via text is very similar to paying via email and online with PayPal. You essentially tell Venmo who you want to pay and how much and Venmo will arrange the transaction. This requires an account to be set up with Venmo prior to or following the transaction so that you can move the money into your normal checking account.

The format for sending money with texts is fairly intuitive.

Pay <number or username> <amount> for <memo line>

For example, if you need to send me $10 for dinner you would text the following to Venmo (646-863-9557)

Benefits and Concerns of Paying With Text

Free – Unlike PayPal, transactions are free when using the Venmo network.

Easy – Request money from people who owe you (Venmo has a “Trust” feature to instantly charge friends in your network for money)

There are also some concerns with paying via text, but hopefully these will get cleared up as the concept becomes more mainstream.

Security – Is it safe? Venmo helps by letting users cancel transactions within 24 hours online and recommends that users use a PIN to lock their phone. Other competitors require a PIN for each transaction to help add a level of security.

Simplicity – Not everyone wants to set up another account online to manage money, but Venmo helps make this easy by allowing users to sync bank accounts straight from the phone

Ubiquity – Until the service gets popular it may be hard to explain to your friends why they should pay with text. The concept has gained more familiarity, though, with the “Text to Haiti” campaign which helped raise over $50M.

Try It Out

Venmo is available via private invitations only right now, but has provided me with 25 invitations for my readers. Use the invite code “obsessed-25” to try it out. After signing up, let me know what you think or send the following text message to Venmo (646-863-9557) to donate $1 to the blog.

Often times when making a purchase we are offered a warranty. Similar to insurance, a warranty often provides a worry free agreement that if your product breaks you will get a free replacement. Continue reading When to Buy a Warranty→